Case studies

Andrew

I’m saving my pension for my children’s inheritance.

Andrew is 66, divorced and has two adult children. He owns his own home and has £350,000 in savings and investments. He has final salary pension income of £45,000 per year and receives the full State Pension making Andrew a higher rate tax payer. He also has a defined contribution pension pot of £16,000.

What Andrew wants

I’d like my children to benefit from my pension pot, so I want to leave it to them when I die.

Andrew's idea

I’m going to leave my pension pot invested for my children to inherit when I die. I’ll use my final salary pension, State Pension and savings to fund my retirement.

What Andrew does

Andrew leaves his pension pot invested in the funds he’s chosen

If he dies before the age of 75, his children, as named beneficiaries, will inherit his pension pot free of inheritance and income tax

If he dies after age 75, any income his children take from the pot will be subject to income tax

If he decides to make a withdrawal, the first 25% of any sum is tax-free. The remaining 75% is subject to income tax. As his other income puts him in the higher rate tax band, he would pay 40% tax on this amount

What Andrew gets

Pension pot £16,000

Tax-free cash 25%of each withdrawal tax-free

75%of each withdrawal taxed at 40%

See how we worked this out

State Pension age65

State Pension£8,767

Pension pot£16,000

Other income£45,000 a year

Other savings£350,000

Property value£310,000

Andrew's calculation

Personal allowance (0% tax)

Earnings from £0 to £12,500

Basic rate (20% tax)

Earnings from £12,501 to £50,000

Higher rate (40% tax)

Earnings from £50,001 to £150,000

State Pension

£8,767 a year

Final salary pension

£45,000 a year

Total regular income (subject to tax)

£53,767 a year

Important things to consider

Andrew is hoping for growth on his pension pot but the value could fall as well as rise and is not guarantee. The final value available to his children could be less than the starting value of £16,000

Not all products from all providers offer this flexibility so check with your pension provider

This example is based on current law and tax rates. These may change in the future and income tax will depend on individual circumstances

If you live in Scotland or Wales you may have a different income tax rate or band

The State Pension amount shown here is the current maximum and is only an example. The amount you get depends on your National Insurance contributions’ record and your individual circumstances. You can get a State Pension forecast by visiting GOV.UK View - Check your State Pension